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The terms financial advisor and financial planner are often used interchangeably. However, they actually refer to two different types of professionals who offer distinct services. While both offer guidance on investments, taxes and other financial matters, financial advisors generally focus on managing an individual’s investment portfolios, while financial planners take a look at the entire financial picture and an individual’s long-term goals.
Understanding these two roles can help individuals choose the right professional to meet their unique financial needs.
Let’s explore the differences between a financial advisor vs. financial planner so you can determine which one is best for you.
What is a financial advisor?
A financial advisor is a professional who provides guidance and advice to individuals or organizations on various financial matters, including investments, tax laws and insurance. They evaluate the financial needs of their clients and help them make informed decisions to build wealth and achieve their financial goals.
It’s important to note that financial advisors who work with securities are typically required to be licensed or registered with the state. It’s to ensure that they meet qualifications and comply with regulatory requirements designed to protect investors.
What is a financial planner?
Financial planners, on the other hand, specialize in creating comprehensive financial plans for their clients, taking into account various aspects like savings, investments, insurance, retirement and estate planning. The range of services offered by financial planners can differ significantly.
Many financial planners hold credentials such as certified financial planner (CFP) or chartered financial analyst (CFA) and meet stringent educational, ethical and experiential requirements and must continually recertify. Financial planners who give investment advice to their clients must register with the Securities and Exchange Commission (SEC) or the appropriate state securities regulator.
Financial advisor vs. financial planner: What’s the difference?
Financial advisors and financial planners are both professionals who provide financial advice and guidance, but there are some key differences.
- Tasks and responsibilities: A financial planner assists with creating and coordinating comprehensive financial plans, while a financial advisor can offer advice on investing money wisely within those plans.
- Fiduciary vs. suitability standard: One important factor to consider is whether the individual is a fiduciary. A fiduciary must prioritize the client’s interest over their own. Financial advisors may work under the “suitability standard,” which requires that the decision be suitable — not necessarily the best — for meeting the client’s goals, risk tolerance and other considerations.
- Compensation: A final consideration is how these professions are compensated. Financial planners may sell commission-based products like life insurance and require a license from their state regulatory agency. Financial planners may typically receive payment with a flat fee, commission or bonus, while financial advisors may receive an hourly rate, commission, a quarterly or annual retainer, percentage of assets under management or a combination of commissions and other fees. Costs for both professionals can vary greatly.
When to get a financial advisor
If you require help in managing your finances and investments, seeking the guidance of a financial advisor can be a great decision. It’s especially true if you lack the confidence in managing your own finances, have a complex financial situation or if you are planning for a significant event like retirement, homeownership or anything else.
A financial advisor can help plan for the future by monitoring your portfolio and recommend the best investments that align with your goals. They can also recommend and make adjustments based on your specific circumstances. Keep in mind that when selecting an advisor, it’s important to do your research and choose one who prioritizes your best interest.
When to get a financial planner
It makes sense to get a financial planner when you need help analyzing your income, expenses, assets and liabilities. Financial planners will collaborate with you to help establish financial goals and recommend a course of action.
Additionally, a financial planner can provide guidance on investment choices, tax planning and retirement plans, among others. It’s important to seek out a trustworthy financial planner who has the necessary qualifications to provide expert and sound financial advice.
How to find a financial planner or advisor
Finding a financial planner or advisor can sometimes be tricky, but here are some steps to make the process easier:
- Determine your needs: Identifying your specific needs and financial goals will help you narrow your search on finding the right person with the right expertise.
- Ask for referrals: Asking your friends, family or colleagues for recommendations is a good way to find someone with a good track record.
- Research online: Use online resources to search for advisors in your area. If you’re looking for a financial advisor, use Bankrate’s tool for finding a financial advisor in your area.
- Check credentials: Be sure to check any credentials such as education, certificates and licenses.
Having a plan in place and working toward measurable goals with trusted professionals can be the key to a successful future.
Bottom line
While a financial advisor focuses on managing investments, a financial planner takes into account all aspects of your financial picture and long-term goals. Whether you need help with investments or creating a comprehensive financial plan, it’s important to do your research and choose a trustworthy professional who has your best interest in mind. By seeking the guidance of these professionals, you can pave the way for a successful financial future.
— Bankrate’s Rachel Christian contributed to an update of this story.
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